I’ve posted before on the importance of non-price indicators in real estate.  For residential real estate the primary indicators that I look at are Total Sales, Average days on market, and List Price/Sell Price Ratio.  These indicators give you valuable information about stress in the market.  I created the following graph using non-price indicators for a local housing market.  I then normalized the data so that the combined non-price indicators would be positive if the market is showing improving efficiency, and negative if the market is showing decreased efficiency (versus the year earlier period).  More and more investors are entering the market, so it makes sense to have some kind of analytics.

My real purpose in posting the graph here is to call for national or regional index like this to be produced by somebody (NAR, Shiller, etc.)

Note that the market was showing signs of stress as early as late 2004 before it began its final pre-crash run-up.  If you would have gotten out of the market then, or when the indicator dipped negative in mid-2006, you would have been spared.

Again, this graph was just experimental, but I think the indicators could be used to tell you whether you should be buying or not.  If prices are rising, and the non-price indicators are positive, then you should be a strong buyer.  If prices are softening and the non-price indicators are positive, then prepare for improvement in prices. 

If prices are falling, and the non-price indicators are negative, then run like hell.

Analytics like the chart above should also help the people who think that they shouldn’t sell in a down market because “I don’t want to take the loss.”  If you know the velocity at which the market is worsening, then it should be easier to make the call to sell, only to re-buy once the market has stabilized and prices are done falling.  That’s a critical mistake the people often make in riding the market down.  They won’t sell because the don’t want to take a loss, but they also don’t seem to understand that if they do sell there will be an even better buying opportunity down the road (perhaps upgrade in S.F. for the same price that you sold at).

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